How to Make Wealth

I revisited my old friend StumbleUpon yesterday. As always, that old friend had a serendipitous article for me stroking my entrepreneurial ambition, striking so many chords I felt like an old guitar.

The article was by Paul Graham, one of the founders of Y Combinator (a Yahoo! company focusing on helping startups), called How to Make Wealth. When I felt read that title I was a little put off. To me, the chances that anyone would write an article “How to Make Wealth” in an attempt to make anyone else but him or herself wealthy was pretty low; and my b-sh*t meter went up a notch.

But I’m not one to think everyone from China’s uncouth and everyone from India’s out to make a quick buck, so I gave the article a chance and skimmed down a couple of paragraphs. Before I knew it, I was hooked.

The article’s about entrepreneurship, but not just that. Graham takes plenty of pokes at why typical jobs don’t work for people who tend to contribute above the mean.

Here’s his article, trimmed down to the bare essentials for your skimming pleasure:

On Startups

• A startup has the potential to make you lots of money within a short number of years — it condenses your earning potential from say 30 years to three — but along with the earnings, the pains, too, are condensed.
• You can get rich reasonably straight-forwardly with some talent and hard work. But thinking about getting billionaire-rich takes more than just hard work and talent; luck plays a part too.

On Money and Wealth

• Money is not wealth, it’s just a method of allowing people to easily exchange their labour for something they want or need. You want wealth (i.e. what money can buy), not money.
• Making wealth is the creation of value. When you create something (a piece of art or software; refurbishing an old home or car; repairing a broken down widget, etc.) you create wealth. You make something somebody else wants or needs.
• Money may be zero-sum: if one person gets more, chances are good another person gets less.
• Wealth on the other hand, is infinite. You create something, and there’s suddenly more wealth in the world. Even if nobody buys anything from you, that thing you created can improve the lives of others in other ways, even if just through aesthetics (if it makes life look better, life’s better).

On job performance and measurement

• Companies create wealth.
• Companies pay you for the value you create. When a company employs you, it assumes you’re going to be making the company more than you’re costing it (e.g. salary and bonuses).
• But the problem is you can’t compensate what you can’t measure. Sales and top-management are easily measured; sales by their individual sales, and top-management by the profit of the company.
• When you’re far removed from the actual sales of the product, there’s no easy way to measure you. Engineering designs the product; marketing markets the product; and customer service reps augment the after-sales perception of the product — who gets credit with how much of the actual sales of the product?
• When you can’t be measured, your efforts will be merged with others. You can work your ass off for your company, but chances are good your effort’s subsidising the loafer smoking at the stairwell.
• The solution? Get a job that can measure your performance more directly. If individual performance cannot be done, you can still get close: small groups will work. Work for a smaller company where’s everyone’s performance is much closer tied to how the company’s doing.
• Or start a business.

And he wrote on about startups, of which I’ll just list some points below. Check out the article. It’s good.

On Startups

• It’s small, so it’s much more measurable.
• You pick your own people, and that’s key. A corporation may employ hundreds or thousands of people. By definition many will be just average. When you’re creating a startup, you get to select the best people you know, not the average.

The Catch on Startups

• You don’t decide how hard you want to work. Your competitors do. And how hard do they work? As hard as they can.
• Your product may or may not work. Luck plays a great part.
• Startups are “like mosquitoes”, and exist only for one thing: to score. One slap, though, and you’re dead. Graham writes beautifully, “the defense of mosquitos, as a species, is that there are a lot of them, but this is little consolation to the individual mosquito.”